These days, no Republican, not even Paul Ryan, chairman of the House budget committee and author of the draconian Ryan plan for lowering the federal debt, makes the case for deficit reduction more passionately than Mitch Daniels, Indiana's popular governor, who is suddenly being talked about as a presidential candidate. Speaking at the annual Conservative Political Action Conference (CPAC) in February, Daniels labelled the federal government's debt "the new red menace".

Especially in the state that produced Senator William E Jenner, Joe McCarthy's staunchest congressional ally in the "red scare" days of 1950s, there is no mistaking Daniels's analogy: those who are soft on debt reduction are as dangerous to America as those who were "soft on communism" during the cold war.

The irony is that, like so many other Republicans who held power during the George W Bush era, Daniels was not terribly concerned about deficit reduction when his party was in office. As Bush's director of the Office of Management and Budget, Daniels presided over a historic turnaround in the nation's fiscal fortunes, in which the $5.6tn surplus that emerged from the Clinton administration morphed into a 10-year forecast for a $2.1tn deficit by early 2003.

The unpaid-for expenses of the Iraq war soon made the country's deficit worse than predicted, but even before the war, Daniels defended going into debt. "It is not the top, let alone the only priority," he observed of the deficit in 2003, when President Bush submitted a budget with a $304bn shortfall. "Would you not try to spur economic growth?" Daniels asked Democrats who complained that Bush's tax cuts, which heavily favoured the wealthy, were going to those who did not need them – and did not take into account an impending war.

Daniels was not the only prominent Republican willing to defend the Bush deficits. Senator Charles Grassley of Iowa, the conservative chairman of the finance committee, took the same stance. "In this budget, President Bush charts a straight forward course for peace and prosperity in America," he declared in 2003.

Democrats, by contrast, were the party that in 2003 opposed increasing the debt to pay for more tax cuts. "Budget deficits – the fiscal Frankenstein that shackles economic growth – are back with a vengeance," House Democratic whip Steny Hoyer of Maryland complained, as the 2003 Bush budget was being debated.

Hoyer's opposition to increasing the government's debt in order to reduce taxes was consistent with proposals that President Clinton had made four years earlier, when the Congressional Budget Office estimated that the surplus for fiscal year 1999 would be $76bn. Before Congress went ahead with tax cuts, Clinton wanted to use the government's surplus to shore up social security. "Like any family with long-term financial needs," Clinton observed, "we have to plan for the future."

That Republicans and Democrats both have amnesia about the recent past is hardly surprising. But the seeming reversal of their position does not mean they have changed their thinking. What it points to, instead, is that the deficit reduction is not an ultimate priority for either party.

Reducing taxes has always been the true focus of Republicans, who now insist, in the words of Senate minority leader Mitch McConnell of Kentucky, "There will be no tax increases in connection with raising the ceiling." For Democrats, on the other hand, maintaining the modern welfare state, begun in the 1930s under Franklin D Roosevelt and expanded in the 1960s when Lyndon Johnson was president, has always been key.

How much do deficits and the debt matter, in fact? After the second world war, the federal debt was 109% of GDP, and the country did just fine. Beginning in 1948, the Marshall Plan even paid for Europe to get back on its feet. The one idea voters can console themselves with, perhaps, as the 2012 election approaches, is that the United States can go into debt and still prosper – if it gets its economy revved up.